Katerina Swanson
Diesel fuel prices are primarily determined by the cost of crude oil, which regularly accounts for around 50% of end consumer prices. In 2024, the average price per gallon of diesel was $3.88, with prices fluctuating throughout the year. The Energy Information Administration (EIA) predicted a decrease in diesel prices in 2024 and 2025 due to increased production and refinery capacity, as well as a slight decline in consumption. However, the conflict between Israel and Iran, and other geopolitical tensions, have caused crude oil prices to rise, which could lead to higher diesel prices. While the annual decline in diesel prices is expected to continue in 2025, prices are projected to climb each quarter, with the lowest projection of $3.46 in the first quarter and an average of $3.75 by the fourth quarter.
| Characteristics | Values |
|---|---|
| Diesel price forecast for 2024 | Expected to decrease |
| Diesel price forecast for 2025 | Expected to decrease, with an average of $3.50 per gallon |
| Factors influencing diesel prices | Crude oil prices, supply and demand, refinery capacity, geopolitical turmoil |
| Impact of diesel prices on freight costs | Higher diesel costs lead to higher freight costs |
| Diesel consumption trends | Decline in 2024 due to a slowdown in economic activity and the use of liquefied natural gas in trucks |
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What You'll Learn
The impact of conflict on oil prices
Geopolitical risks and conflicts can have a significant impact on oil price volatility. The Russia-Ukraine War, for instance, led to unusual fluctuations in oil prices, with WTI crude oil futures reaching their highest price since 2008. The outbreak and ceasefire of the Russia-Saudi Arabian oil price war also had an asymmetric impact on the global oil market. These events highlight the influence of geopolitical conflicts on oil prices, affecting energy markets, food security, and stock markets.
The specific channels through which conflicts influence oil prices include financial mechanisms, policy liquidity channels, and geopolitical supply and demand channels. For instance, during the Russia-Ukraine War, the disruption of Russian oil exports and the subsequent reduction in global oil supply caused a significant increase in oil prices. Additionally, the imposition of sanctions on Russia further impacted oil prices as traders avoided Russian oil, leading to a decrease in supply and an increase in prices.
In addition to conflicts, other factors that can affect oil prices include refinery capacity, crude oil prices, and economic growth. For instance, the US Energy Information Administration (EIA) predicted a decrease in gasoline and diesel prices in 2024 and 2025 due to increased refinery capacity and expected economic growth. However, these forecasts are subject to uncertainty, and factors such as refinery shutdowns or disruptions to international trade flows can lead to higher prices.
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Seasonal demand
Diesel fuel prices are influenced by a variety of factors, including seasonal demand. Seasonal demand for diesel fuel typically follows economic trends, with higher prices during periods of increased economic activity and lower prices during slower periods.
In general, consumer demand for diesel fuel is lower during the cooler months, such as winter, which can result in lower prices. This is because the blend of diesel fuel used during these months is cheaper to produce. Additionally, the switch to summer-blend gasoline, which is more expensive to produce, contributes to the increase in diesel fuel prices during the spring and summer months.
Regional variations in seasonal demand can also impact diesel fuel prices. For example, the West Coast market, particularly California, is relatively isolated and heavily dependent on in-region refinery production. As a result, supply disruptions or refinery outages can significantly impact diesel fuel prices in this region.
International demand for distillate fuel, which includes diesel and heating oil, can also affect diesel fuel prices. Mild winters or booming renewable fuel supplies may lead to lower demand for distillate fuels, causing a decrease in diesel fuel prices.
It is worth noting that other factors, such as crude oil prices, transportation costs, and supply conditions, also play a significant role in determining diesel fuel prices. However, seasonal demand patterns can influence the direction of price changes, with prices typically following a seasonal trend.
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Refinery shutdowns
The impact of refinery shutdowns on diesel prices became evident in 2025. According to OilPrice.com, refinery closures, combined with growing demand for diesel, squeezed fuel inventories to levels not seen since 2000. Specifically, the closure of two refineries in Houston and Los Angeles reduced fuel production capacity in the U.S. by 400,000 barrels daily. This tightening of fuel supplies naturally led to upward pressure on diesel prices.
Reuters also reported that the global diesel market would find price support in 2025 due to the closure of about 1% of refining capacity. They estimated that around 1 million barrels per day of refining capacity in Europe and the U.S. would permanently shut down, while world demand was expected to rise slightly. JP Morgan anticipated that European diesel margins would increase, and refinery shutdowns would outpace demand contraction.
The EIA's Short-Term Energy Outlook highlighted the impact of declining U.S. refining output. They projected a decline of 190,000 barrels per day in 2025 and a further 180,000 barrels per day in 2026. To meet the increasing domestic fuel demand, they expected refinery utilization to remain high, ensuring net U.S. exports of petroleum products decreased.
Reduced refinery activity, particularly in the Midwest and Gulf Coast regions, contributed to decreasing regional inventories and higher retail prices for diesel fuel. The U.S. Gulf Coast, with the most significant drop in refinery utilization, was the primary driver of overall reduced refinery runs in the country.
In summary, refinery shutdowns, particularly in regions with high diesel demand, have exerted upward pressure on diesel fuel prices. The combination of reduced refining capacity and increasing demand has resulted in tighter fuel supplies and higher prices for consumers.
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Diesel consumption decline
Diesel consumption in the US declined in the first quarter of 2023 compared to the same period in 2022, despite economic growth during this time. This marks a shift in the historical relationship between diesel consumption and economic growth.
Traditionally, GDP and manufacturing production are positively correlated with diesel demand, as trucking manufactured goods across the country relies on diesel fuel. However, the primary driver of GDP growth has recently shifted to the service sector, which requires less diesel. This trend is expected to continue, with a forecast of US diesel consumption in the second half of 2023 predicted to be below the 2015-2019 average, followed by a further slight decline in 2024, despite an anticipated rise in GDP.
In 2023, gasoline consumption in the US increased, while distillate fuel oil (diesel) consumption decreased. Gasoline consumption is almost three times higher than diesel consumption, which amounts to less than three million barrels per day.
Diesel consumption in India also saw a decline in February 2025, primarily due to a shift towards alternative fuel sources such as electric vehicles (EVs) and compressed natural gas (CNG). Diesel demand continues to be impacted by the move towards alternative fuels, particularly in the light commercial vehicle segment.
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Freight market recovery
Diesel fuel prices are influenced by several factors, including the cost of crude oil, transportation costs, local market conditions, and taxes. Diesel is a significant transportation fuel, and its demand is closely linked to economic trends and the freight market.
In 2017, a recovery in the US freight industry contributed to a sharp rise in diesel demand after a downturn in 2015-2016. This recovery was driven by a normalization of business inventories and improvements in the oil, gas, and coal sectors.
However, in 2024 and 2025, the US Energy Information Administration (EIA) expects diesel prices to decrease due to increased international production and a growing global supply of refined products. This decrease in diesel prices is expected to occur despite a projected modest increase in US diesel consumption of 1.3% in 2024.
The freight market's recovery is closely tied to diesel prices. When diesel prices are high, freight costs increase for shippers, impacting their profit margins. A market recovery, along with stable diesel prices, can help maintain shipping rates within manageable budgets and prevent price increases for consumers.
As of June 2025, the freight market exhibits regional volatility rather than broad-based momentum. The steel and aluminum tariffs reintroduced by the Trump administration in June 2025 are expected to impact industrial freight costs. Additionally, the Gulf and East Coasts are experiencing increased freight activity due to importers seeking tariff-sheltered ports.
In conclusion, the freight market recovery is influenced by various factors, including diesel prices, economic trends, inventory levels, and international trade policies. While diesel prices are expected to decrease in 2024 and 2025, the freight market's recovery remains cautious, with regional variations and ongoing challenges.
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Frequently asked questions
Diesel fuel prices are predicted to decrease in 2024 and 2025, according to the U.S. Energy Information Administration (EIA). However, these forecasts are subject to change due to various factors such as crude oil prices, refinery shutdowns, international trade disruptions, and logistical issues.
Diesel prices are primarily determined by the cost of crude oil, which regularly accounts for around 50% of end consumer prices. Other factors include supply and demand, refinery capacity, economic growth, and competition from alternative fuels.
Higher diesel costs can lead to increased freight rates, affecting shipping businesses and potentially resulting in higher consumer prices. Additionally, diesel prices can influence travel costs, transportation expenses for businesses and individuals, and the overall cost of living.
As of December 2024, the average price of diesel per gallon was $3.46, a decrease from the start of the year. The price is expected to climb in 2025, with the first quarter projected at $3.46 and an average of $3.75 by the fourth quarter.
